Govt withdrew KD 28.5bn in 3 years amid oil slump

KUWAIT: The government has withdrawn KD 28.5 billion from the general state reserve over the past three fiscal years starting from the 2014/2015 fiscal year, Finance Minister Anas Al-Saleh said yesterday. The minister said in a reply to a parliamentary question that KD 9.64 billion was withdrawn in 2014/2015 and KD 11.47 billion in 2015/2016, while KD 7.46 billion was withdrawn in the past fiscal year, the minister said. The withdrawal coincided with the start of a sharp drop in the price of oil, whose revenues made up around 95 percent of total public revenues before the slump in oil income.

But the ministry of finance later explained that only a small portion of the withdrawn funds were used to finance the budget deficit. A spokesman for the ministry said the bulk of the funds, or KD 15.55 billion, were injected into the Reserve Fund for Future Generations, from which the law forbids any withdrawals. A ministry spokesman said KD 5.74 billion was used to finance the budget deficit of 2016/2017, while KD 1.4 billion was used to pay for a shortfall at the pension agency. The remaining funds of KD 5.1 billion were withdrawn in the 2015/2016 fiscal year, he said.

In a related development, Saleh said the ministry of finance is considering the implementation of value added tax (VAT) on certain sectors, but is studying measures to minimize its impact on citizens. He said the ministry is studying alternatives to safeguard low-income people from the negative impacts of applying the economic reforms program following the slump in oil revenues.

The minister said the sharp drop in oil prices resulted in a massive decline in the state revenues, prompting the government to carry out economic reforms including diversifying sources of income. Accordingly, the government established the national program for financial and economic sustainability with the aim to reduce the budget deficit.

The ministry is currently assessing the possible impact of VAT before implementing it, the minister said, adding it is considering exempting certain sectors and commodities from VAT to minimize its impact. He said that the impact of VAT is lower on low and middle class people because they spend less, and VAT depends on spending.